Flexi Business Loans vs Term Loans

Last Updated: 14 Oct 2024

In the ever-changing world of business financing, entrepreneurs come across various options to finance their operational needs and accomplish their dream of expansion. Flexi business loans and term loans are the two most popular choices which act as a potential instrument for offering financial support. But how are these two different from one another? Let’s gain knowledge on flexi business loans vs. term loans.

Point Of Differences Between Flexi Business Loans vs. Term Loan

Flexi business loans and term loans are two distinct financing options available to businesses. Here is a detailed explanation of the differences between these two loan types:

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Repayment Flexibility:

Flexi business loans offer borrowers a high level of flexibility concerning repayment, which can be done per the situation of cash flow. This particular type of loan provides the borrower with the freedom to repay more when they have surplus funds and less during lean periods.

The calculation of the interest is solely done based on the utilized amount. Therefore flexi business loans offer businesses enhanced control over their cash flow.

On the other hand, the repayment schedule of term loans is more structured, with a fixed amount in monthly installments. The period of repayment is predetermined during the loan approval.

The businesses are expected to make regular payments until the complete clearance of the loan. The amount of repayment remains unchangeable throughout the loan tenure, irrespective of any change in the cash flow of the business.

Flexibility Concerning The Limit Of Borrowing:

Flexi loans allow businesses to borrow funds multiple times within a predetermined credit limit. They can repay and withdraw the funds as per their financial requirements. Therefore companies can access extra capital whenever required and without entering into the hassle of applying for a new loan.

While term loans provide businesses with a lumpsum amount at the time of disbursal, the limit of borrowing remains fixed based on the creditworthiness of the business. The assessment of the lender as well as the financials. However, businesses are only allowed to borrow additional funds after the disbursement of the loan amount if they apply for a new loan.

Calculation Of Interest:

In the case of flexi loans, the calculation of interest is done on the utilized amount, and for the entire duration, it remains outstanding. Thus the businesses only pay interest on the portion of the loan being used. Businesses can also reduce the burden of interest by repaying the loan early before the stipulated date of repayment.

While for term loans, the calculation of interest is done on a fixed rate of interest on the entire loan amount. This calculation is based on the tenure of the loan and is evenly spread over the whole period of repayment. Interest is incurred on the entire loan amount irrespective of whether the total loan amount or partial amount is utilized.

Usage And Purpose:

Flexi loans are perfect for businesses that experience a fluctuating cash flow, irregular patterns of income as well as seasonal variations. They offer enough flexibility to businesses to manage the needs of working capital, seize business opportunities and bridge temporary gaps in the business.

Term loans offer the utmost suitability for expanding businesses, making significant investments, purchasing fixed assets, or funding long-term projects. They are ideal for businesses having a clear plan of repayment and well-defined funding requirements.

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Final Thoughts:

A clear understanding of the difference between flexible business loans and term loans is essential to make an informed decision on pursuing the required capital for business.

However, it is also essential to note that the process of documentation and approval for flexi loans is quicker and more straightforward than for term loans, making it easier for businesses to access funds whenever required. On the other hand, term loans require more extensive approval and documentation processes and come with less repayment flexibility.